Page 2 of
2 The day
the US declared war on Iran By
John McGlynn
Iranian Revolutionary Guards
Corps (IRGC) is a "paramilitary" organization
"directly involved in the planning and support of
terrorist acts, as well as funding and training
other terrorist groups". Then he offers the
alarming revelation that the IRGC "is so deeply
entrenched in Iran's economy and commercial
enterprises, it is increasingly likely that if you
are doing business with Iran, you are somehow
doing business with the IRGC".
With such
language, Treasury lays the groundwork for
applying financial sanctions against the entirety
of Iran. All this makes clear that the growing
coalition of bankers against Iran the US likes to
trumpet may not be such a willing group.
Some indication of how unwilling can be
found in the pages of Der
Spiegel (English
edition). In July 2007, the German news magazine
reported that "anyone wishing to do business in
the United States or hoping to attract US
investors had best tread softly when it comes to
Iran. Germany's Commerzbank stopped financing
trade with Iran in US dollars in January, after
the Americans piled on the pressure". One German
banker interviewed said: "German financial
institutions feel the United States government has
been engaging in 'downright blackmail'." The
magazine goes on to report: "Anti-terror officials
from the US Treasury are constantly showing up to
demand they cut their traditionally good relations
with Iran. The underlying threat from the men from
Washington is that they wouldn't want to support
terrorism, would they?"
Also, an April
2007 report from Britain's House of Lords Economic
Affairs Committee states that the Confederation of
British Industry indicated "strong concern" about
Patriot Act provisions and other US
extra-territorial sanctions. The committee
recognized the need for "vigorous action" in
response to terrorist threats but also "endorse[d]
the condemnation by the EU [European Union] of the
extra-territorial application of US sanctions
legislation as a violation of international law".
Thus the US will need help from European
government leaders to overcome resistance among
major European financial institutions to US-led
financial sanctions. Such help has already come
from German Chancellor Angela Merkel. During her
recent state visit to Israel, Merkel told the
Knesset (Parliament) that Iran was global enemy
number one. "What do we do when a majority says
the greatest threat to the world comes from Israel
and not from Iran?" she asked. "Do we bow our
heads? Do we give up our efforts to combat the
Iranian threat? However inconvenient and
uncomfortable the alternative is, we do not do
that." Iran is public enemy number in the world,
and everyone - including the European banking
establishment it would seem - has to accept that.
To summarize to this point: (1) the March
20 advisory represents a US declaration of war by
sanctions on Iran and a sanctions threat to the
international banking community, (2) the US has
various unilateral financial sanctions measures at
its command in the form of executive orders and
Patriot Act Section 311 and (3) the BDA-North
Korea sanctions were, at least in retrospect, a
test run for Iran.
If the US succeeds, an
international quarantine on Iran's banks would
disrupt Iran's financial linkages with the world
by blocking its ability to process cross-border
payments for goods and services exported and
imported. Without those linkages, Iran is unlikely
to be able to engage in global trade and commerce.
As 30% of Iran's gross domestic product in 2005
was imports of goods and services and 20% was
non-oil exports (World Bank and other data), a
large chunk of Iran's economy would shrivel up.
The repercussions will be painful and extend well
beyond lost business and profits. For example,
treating curable illnesses will become difficult.
According to an Iranian Health Ministry official,
Iran produces 95% of its own medicines but most
pharmaceutical-related raw materials are imported.
With a financial sanctions war declared,
what happens next? There have been some hints.
On February 25, the Wall Street Journal
reported that Treasury was considering sanctioning
Iran's central bank (known as Bank Markazi). "The
central bank is the keystone of Iran's financial
system and its principal remaining lifeline to the
international banking system," explains the
Journal. "US sanctions against it could have a
severe impact on Iranian trade if other nations in
Europe and Asia choose to go along with them." In
anticipation of future events, the Journal notes:
"US officials have begun trying to lay the
groundwork for a move against the central bank in
public statements and meetings with key allies."
So look for the following to happen in the
coming weeks: FinCEN will probably issue a Patriot
Act Section 311 finding that Iran's central bank
is a "primary laundering concern". The
"deficiencies in Iran's AML/CFT" wording lifted
from the FATF statement will be a key reason for
that finding. The finding may be accompanied by a
formal decision to cut off Iran's central bank
from the US financial market, or such a decision
could come later.
Of course, an actual or
threatened cut-off has no immediate financial
implications for Iran since no Iranian-flagged
bank is doing business in the US, except possibly
to allow shipments from the US of humanitarian
provisions of food and medicine, which, if they
exist, probably terminate with the March 20 FinCEN
announcement.
But a Section 311
designation of Iran's central bank would have a
powerful coercive effect on the world's banks. For
any bank in Europe, Asia or anywhere else that
goes near the central bank, once the 311 blacklist
is on, it would be the kiss of death for that
bank's participation in the international banking
community, as it was (and remains today) for BDA.
Not only would that bank be barred from the US
financial market, it would also be shunned by
European and Japanese financial markets, as
government and private banking officials in those
markets are likely to cooperate with Washington's
intensifying sanctions campaign.
What
about China, now one of the world's major
financial centers (two Chinese banks ranked among
the top 25 in The Banker's 2007 survey of world
banks) and a major trading partner for Iran?
China and Japan "were the top two
recipients of exports from Iran, together
accounting for more than one-quarter of Iran's
exports in 2006", according to an analysis of
International Monetary Fund trading statistics
contained in a December 2007 US Government
Accountability Office (GAO) report on Washington's
anti-Iran sanctions regime. On the import side,
the GAO found that in 2006 "Germany and China were
Iran's largest providers of imports, accounting
for 23% of Iran's imports". Airtight global
banking sanctions imposed on Iran would presumably
make the financial administration of this trade
next to impossible.
Will China bend to US
sanctions wishes? Early signs suggest the answer
is yes.
In December 2007,
ArabianBusiness.com reported that Chinese banks
were starting to decline to open letters of credit
for Iranian traders. Asadollah Asgaroladi, head of
the Iran-China chamber of commerce, was quoted as
saying that China's banks did not explain the
refusal but "if this trend continues it will harm
the two countries' economic cooperation and trade
exchange". In February, ArabianBusiness.com found
that China's cutback in its banking business with
Iran was affecting a joint automobile production
arrangement.
Such disruptions in the
Chinese-Iranian banking relationship are minor.
Meanwhile, Beijing keeps insisting that peaceful
diplomacy with Iran is the best policy and that
the only sanctions needed are those mandated under
the three UN Security Council resolutions already
on the books. Thus, to make China cooperate with
Washington's unilateral banking sanctions, the US
and the EU, reports the Financial Times, are
apparently using a tag-team strategy.
On
February 12, the FT told readers that "the US
believes that tighter EU sanctions will put
pressure on other nations that do more business
with Iran - China for example - to curb their
activities". Therefore, explained an anonymous
diplomat apparently from the US, "We will be
pushing the EU to go further than the Security
Council," a move intended, the diplomat said, to
"gold plate" Security Council requirements.
To explain this move, the FT provided an
example of "gold plating" from 2007, when the EU
implemented UN Security Council resolutions 1737
and 1747 on Iran:
In similar language to the current
text on Banks Saderat and Melli, the UN had
called for "vigilance and restraint" concerning
the movements of individuals linked to Iran's
nuclear and missile programs and members of its
Revolutionary Guards. But in implementing the
resolutions, the EU subjected all the named
individuals to a travel ban - a much tougher
measure.
Reading between the lines,
the intention behind "gold plating" Security
Council resolutions is to put pressure on China to
bow to a more aggressive US-EU sanctions program.
In the case of the most recent Security
Council resolution on Iran, 1803, which put
sanctions on two Iranian banks, FinCEN rolled two
"gold plating" actions into one. It combined the
Security Council's naming of the two banks with
the October and February FATF statements to
justify its March 20 warning to the world that
Iran's entire banking system is a danger. Whether
the EU will follow FinCEN's action, and how China
will respond to any of this, remains to be seen.
In short, the US has in effect declared
war on Iran. No bombs need fall as long as the US
strategy relies solely on financial sanctions. But
if US Section 311 designates Iran's central bank
as a financial criminal, the impact will be the
financial equivalent to the first bombs falling on
Baghdad at the start of the US-British invasion of
Iraq in March 2003.
In a 1996 publication
written for the National Defense University,
Harlan Ullman and James Wade introduced a military
doctrine for "affecting the adversary's will to
resist through imposing a regime of shock and awe
to achieve strategic aims and military
objectives".
Former US defense secretary
Donald Rumsfeld made shock and awe famous by
invoking it as the US strategy in the attack on
Iraq in March 2003 (though weeks later Ullman was
claiming Rumsfeld was misapplying the doctrine).
But shock and awe's authors (apparently
with something like Vietnam or the 1993-1994
Somalia fiasco in mind) also envisioned that "[i]n
certain circumstances, the costs of having to
resort to lethal force may be too politically
expensive in terms of local support as well as
support in the US and internationally".
Consequently, they wrote:
Economic sanctions are likely to
continue to be a preferable political
alternative or a necessary political prelude to
an offensive military step ... In a world in
which nonlethal sanctions are a political
imperative, we will continue to need the ability
to shut down all commerce into and out of any
country from shipping, air, rail and roads. We
ought to be able to do this in a much more
thorough, decisive, and shocking way than we
have in the past ... Weapons that shock and awe,
stun and paralyze, but do not kill in
significant numbers may be the only ones that
are politically acceptable in the
future.
It was only a matter of
finding a sanctions strategy systematic enough to
make this more obscure portion of the shock and
awe doctrine operational. What Ullman and Wade
could not have imagined was that Washington's
global planners would use extraterritorial legal
powers and its financial clout to coerce the
global banking industry into accepting US foreign
policy diktat.
North Korea was a test-run
for the new strategy of shock and awe financial
sanctions. As Washington Post columnist David
Ignatius put it in February 2007, "[t]he new
sanctions are toxic because they effectively limit
a country's access to the global ATM. In that
sense, they impose - at last - a real price on
countries such as North Korea and Iran."
What then will the impact be of this
US-Iran banking standoff? For the US, almost no
impact at all. Treasury bureaucrats will spend
some time and a little taxpayer money making phone
calls, checking computer screens and paper trails
to monitor global banking compliance with
sanctions. The cost of financially ostracizing
Iran will be a bargain for US taxpayers compared
with the eventual $3 trillion cost of the Iraq and
Afghanistan wars estimated by Nobel prize-winning
economist Joseph Stiglitz and Harvard financial
expert Linda Bilmes.
Iran, however, will
become another Gaza or Iraq under the economic
sanctions of the 1990s, with devastating impact on
economy and society. That Iran's complete
financial and economic destruction is the goal of
US policy was spelled out by the State Department
the day before the FinCEN announcement.
During a daily press meeting with
reporters on March 19, the State Department's
spokesperson was asked about a deal recently
signed between Switzerland and Iran to supply
Iranian natural gas to Europe. After condemning
the deal, the spokesperson explained that the US
is opposed to any "investing in Iran, not only in
its petroleum or natural gas area but in any
sector of its economy" and questioned rhetorically
the wisdom of doing business with Iranian
"financial institutions that are under UN
sanctions or could become under sanctions if it's
found that they are assisting or aiding or
abetting Iran's nuclear program in any way". A
clearer expression of US desires is hardly
possible.
John McGlynn is an
independent Tokyo-based economic and financial
analyst. Email: jmcgtokyo@yahoo.com
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